Sterling
The Pound ticked higher against most of the majors yesterday ahead of this morning’s consumer price index report. The British inflation rate is anticipated to have inched higher from 0.3% to 0.4% in March: a small but positive step in the normalisation process. We are still a long way off hitting the Bank of England’s 2.0% target but if inflation prices continue to creep higher then policymakers will be forced to consider raising rates over the next 6-18 months.
However, before the Pound starts rallying on rate hike expectations there is one very important obstacle that needs to be overcome: June’s EU referendum. Any Sterling rallies are liable to remain capped ahead of the vote.
Euro
The Pound to Euro exchange rate jumped higher by around a cent at the start of this week’s session as markets reacted positively to a deal that will see Greybull Capital purchase Tata Steel, which should allow thousands of workers in and around the various steelworks’ to keep their jobs.
Never one to mince his words, European Central Bank official and Bundesbank President Wolfgang Schauble voiced his concerns surrounding the ECB’s ultra-loose monetary policy stance. The German central banker reportedly told ECB President Mario Draghi to ‘be very proud’ that the bank’s easing measures had helped foster the rise of the right-wing Eurosceptic Alternative for Germany party, which aims to shutdown all mosques in Germany and is now the nation’s third-largest political party.
US Dollar
Sterling also got off to a good start to the week against the US Dollar yesterday, with a 100+ pip gain against the world’s premier reserve currency.
Despite US inflation being tipped to massively outshine UK CPI this week, with a score of 1.1% to the UK’s 0.4%, demand for the ‘Greenback’ is stuttering ahead of a slew of speeches from Federal Reserve officials. Following last week’s dovish Fed minutes report, which contained little hope of any further near term rate hikes, the US Dollar has suffered as dovish bets have eroded the appeal of the North American currency.
If this week’s central bank statements strike a similarly cautious tone then the ‘Greenback’ could easily slide further. But if Fed officials give the bulls hope of higher rates over the next few months then GBP/USD may well be forced to give up its recent gains.
Canadian Dollar
The Pound to Canadian Dollar pair surged higher by around 150 pips yesterday morning as investors locked in profit from last week’s 11-month low. However, Sterling failed to maintain its early morning form and GBP/CAD settled for the day up just 25 pips. There are no Canadian ecostats on the calendar until Wednesday when the Bank of Canada is expected to leave rates on hold at 0.5%.
Australian Dollar
Risk aversion trends were stoked by a worse-than-anticipated Chinese CPI print of 2.3%, compared to calls for 2.4%, and an announcement from the IMF that it expects the Chinese dragon to see economic growth slow from 6.9% to 6.7% in 2016. The news dampened investors’ demand for risk assets such as the ‘Aussie’ Dollar and subsequently the Pound was able to appreciate.
New Zealand Dollar
Sterling rallied against the New Zealand Dollar yesterday morning as soft Chinese data hurt risk sentiment. However, the high-beta ‘Kiwi’ followed its Antipodean cousin, the ‘Aussie’, higher during the afternoon.
Data Released
09:30 GBP Consumer Price Index (YoY) (MAR) High 0.4%
21:00 Fed’s Lacker Speaks in North Carolina